Bulls, Bears, and Beyond - IN DEPTH WITH JAMES GRANT - Vol. 7, No. 1 January - February 2021 - Mises Institute
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Vol. 7, No. 1 January – February 2021 Bulls, Bears, and Beyond IN DEPTH WITH JAMES GRANT PAGE 4
3 Jeff Deist – From the Publisher
4 Bulls, Bears, and Beyond: In Depth
with James Grant
16 Community and Civil Society over
State – David Gordon Reviews
20 Special Entrepreneurship
Issue: Quarterly Journal of
Austrian Economics
21 Economics for Business
22 Institute Happenings
Published 2021 (six times per year) by
the Mises Institute under the Creative
Commons Attribution-Non Commercial
4.0 International License.
http://creativecommons.org/licenses/by-nc/4.0/
Publisher: Jeff Deist
Editor: Ryan McMaken
Associate Editor: Tho Bishop
Managing Editor: Judith F. Thommesen
Design/Layout: Maria J. Black
Contributing Editors:
David Gordon
Joseph T. Salerno
Mark Thornton
Cover Image By
Jennifer Graylock-Graylock.com
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January – February 2021 | 3
jeffdeist@mises.org @jeffdeistWe especially appreciate his warnings about fra-
From the Publisher
gility in the monetary system. Each new crisis brings a
more “muscular” response: lower interest rates and
an expanding central bank balance sheet, through
Jeff Deist asset purchases or otherwise. The latest crisis is called
“covid,” but really stems from the enormously harm-
ful and deflationary lockdowns of
business enacted due to the virus.
It is an enormous simplification to speak of the American The predictable response from DC
mind. Every American has his own mind. It is absurd to was an orgy of both monetary and
fiscal “stimulus,” a word we might
ascribe any achievements and virtues or misdeeds and vices define as “things governments and
of individual Americans to America as such. What makes the central banks do to encourage bor-
rowing and spending.” The notion
American people different from any other people is the joint that demand and consumption drive
effect produced by the thoughts and actions of innumerable prosperity is neither new nor cor-
uncommon Americans. rect, but it manages to find purchase
with every new generation of central
bankers and economists.
–Ludwig von Mises, Theory and History How much stimulus? We can start
with M1, the money supply mea-
Joe Biden’s inauguration was a spectacle of outright sure which captures the most readily
militarism and state idolatry, although his speech pro- accessible funds for spending—actual currency in circu-
duced only the kind of somnambulistic platitudes some- lation outside the Fed and money in checking accounts.
one who spent decades in the US Senate can muster. This “ready money” stood at less than $4 trillion in Janu-
Chief among those platitudes was a call for ever-elusive ary 2020; by the end of the year it had risen to nearly $7
unity, followed by his signing of seventeen executive trillion. In fact, the US printed more money in June alone
orders to demonstrate how unity starts with unitary than it had in two centuries since its founding. Consider
executive power! this next time you hear a financial pundit dismiss inflation.
It’s easy to become demoralized over politics. But Will it work? Not indefinitely. Yes, the Fed sets in
that only grants the political class more power. We have motion credit-fueled speculation. But as Mr. Grant
truth, justice, and reality on our side. And what’s more, explains, the business cycle itself is not entirely the work
we have people like James Grant on our side, who has of central banks. Sometimes the speculative frenzy is
enormous talent and energy. Our friend Kevin Duffy, a merely set in motion by expansionary policy but far out-
lasts any initial monetary stimulus. Mises and Rothbard
fund manager and longtime supporter of the Mises Insti-
explain very precisely how the Fed initiates the boom,
tute, favors us this month with his “guest” interview of
but the boom itself contains the seeds of the bust. We
Mr. Grant. The interviewee is the famous financial writer
cannot know the timing of this process, and anyone who
and publisher of Grant’s Interest Rate Observer, who cred-
claims to know is guessing. Reading James Grant instead
its Murray Rothbard with the soundest and most accu-
of the financial press is a necessary step toward making
rate interpretation of the 1930s Great Depression. His
sense of the whole mess. nn
historical knowledge of booms and busts is perhaps
unrivaled among financial journalists, so it is a very good
time to consider his counsel. Jeff Deist is president of the Mises Institute.
4 | The Austrian | Vol. 7, No. 1
Bulls, Bears,
and Beyond
IN DEPTH WITH
JAMES GRANT
INTERVIEW CONDUCTED BY MISES INSTITUTE MEMBER KEVIN DUFFY
James Grant is editor of Grant’s Interest Rate
Observer, which he founded in 1983. He is the
author of nine books, including Money of the Mind,
The Trouble with Prosperity, John Adams: Party
of One, The Forgotten Depression, and more
recently Bagehot: The Life and Times of the Greatest
Victorian. In 2015 Grant received the prestigious
Gerald Loeb Lifetime Achievement Award for
excellence in business journalism. James Grant
is an associated scholar of the Mises Institute.
Kevin Duffy is principal of Bearing Asset Management,
which he cofounded in 2002. The firm manages
the Bearing Core Fund, a contrarian, macro-
themed hedge fund with a flexible mandate. He
earned a BS in civil engineering from Missouri
University of Science and Technology and has a
passion for financial history, Austrian economics,
and pithy quotes. He also publishes a bimonthly
investment letter called the Coffee Can Portfolio.
Duffy attended Mises University in 1990 after
seeing Lew Rockwell on CNN’s Crossfire in 1989.
January – February 2021 | 5
I am seventy-four years old and every day I get
Kevin Duffy interviewed James Grant for his newsletter out of bed I am beating the odds. The idea of sus-
Coffee Can Portfolio. It is reprinted with permission.
pending ordinary living pending the arrival of a vac-
KEVIN DUFFY: 2020 has been part dystopian cine is absurd. Still worse is the forced suspension
fiction, part tulip mania. How do we reconcile the of the lives of people seventy years younger than I.
two?
My grandchildren, for instance. “We can’t sacrifice
JAMES GRANT: I’m not sure there’s much dis- our children out of our own fear,” said Dr. Scott
tinction. To me, the current form of dystopia is the Atlas in so many wise words.
bubble form, so I think this is the year of the dys-
topian bubble. Life is a matter of tradeoffs. And early on
people would plague you if you held this view in
KD: There has been a worship of authorities. For
public by saying, “You mean to tell me that you are
the past thirty-seven years you’ve focused mainly
on the Fed, but this year we’ve seen a reverence for willing to trade off profits for human lives?” Well
medical authorities. Who has done more damage? no, I’m willing to trade off risks, and it’s what we
all do, whether we realize it or not, whether we
JG: The medical authorities remind me of the
can express this or not. We are all, at least sub-
economic authorities. Both pretend to draw a bead
on the future. Let’s compare them both to the consciously, living according to our tolerance for
meteorological authorities. The National Weather risk. We look both ways or no, we don’t look both
Service spends over a billion dollars a year and ways. We scrupulously observe fifty-five miles an
takes tens of millions, if not billions, of discrete hour or we are young and quick and bold and drive
observations of wind, weather, tide, temperature, seventy-five miles an hour and probably not run a
what have you. But notice the five- and ten-day risk to ourselves or others. So people by and large,
forecasts on your trusty iPhone are ever changing. not exclusively and not entirely, but people by and
This is the weather. Temperature gradients don’t large know these things about themselves. And
have feelings, they don’t get jealous of the mil- what Hayek was driving at is that the Soviet Union
lionaire next door, they don’t watch CNBC, yet our
failed for a reason.
forecasting ability goes out, maximum, ten days.
Even so, the economists think nothing of calling KD: Let’s take a step back and talk about some
next year’s GDP. of the early influences on you. When did Jim Grant
KD: This sounds very much like Friedrich Hayek start to become “Jim Grant”?
and the pretense of knowledge. There’s a certain JG: July 26, 1946.
hubris taking place. What might the alter-
native to top-down planning look like?
JG: Counselor is leading the witness!
“Pretense of knowledge” is a three-dollar
phrase; in Brooklyn it’s called bluffing.
Of course knowledge is dispersed. Every
individual knows what he or she wants. An
economist would say that we know our
own demand curves and supply curves.
Governor Cuomo can only guess—as bril-
liant as the governor is—at what we want
and what risks we are prepared to run
with our lives.
6 | The Austrian | Vol. 7, No. 1
KD: [Laughter] When did you realize you were too, has its cycles. The 1947 founding of the Mont
an independent thinker? Was there a lightbulb Pèlerin Society, a group of old-style liberal thinkers
moment or were you just wired that way? led by Friedrich Hayek, might represent the bottom
JG: I’ve always been a “yes, but” guy, a skeptic. of the long twentieth-century bear market in eco-
At Indiana University, I took a course in the history nomic liberty.
of economic thought. It gave me a sense of the KD: The roots of our monetary meddling go
cycle of ideas—how today’s certitudes become back further, don’t they—even to the Civil War?
tomorrow’s heresies.
JG: Right. It was to fight that war that the Lin-
Ideas about markets, individual enterprise, indi- coln administration issued the first greenbacks—
vidual freedom—they wax and they wane. paper money not convertible on demand into gold
Edmund Burke, in his monumental Reflections on or silver. Salmon P. Chase, Lincoln’s Treasury sec-
the Revolution in France, described English financial retary, pushed the greenback plan while holding
arrangements along about 1790. He pointed out his nose. He called the legal tender clause “repug-
that there was no legal tender law in Britain. The nant,” a form of monetary coercion. Later, as chief
only kind of money a creditor had to accept for a justice of the United States, he actually judged
debt was gold or silver. Not even the Bank of Eng- that clause to be unconstitutional. Subsequent
land could force its notes on the public. Could any- course held otherwise, of course, and the green
thing be better, more equitable? Not for me, but notes in your wallet today are “legal tender for all
notice that system is extinct. debts public and private.” Hardly anyone gives it
You could say that economic freedom, broadly a thought. Certainly the precedent for what hap-
defined, peaked around 1914, the year following pened in 1913 was set many decades before during
enactment of the income tax and the signing of the Civil War.
the Federal Reserve Act.
KD: So 1913 brought us the modern incarnation
KD: And the direct election of senators… of our central bank, the Federal Reserve. Its first
JG: Right. And then came World War I, following test, from a monetary policy standpoint, was the
which (after the 1920s roared) was the war mobi- depression of 1921, which you wrote about in The
lization of the 1930s and 1940s. High taxes, heavy Forgotten Depression. What was the policy response
regulation, economic regimentation. But statism, back then, and how was it different than today?
Photo by ©Jennifer Graylock-Graylock.com
You could say that economic freedom,
broadly defined, peaked around 1914, the
year following enactment of the income tax
and the signing of the Federal Reserve Act.
James Grant accepting the “Lifetime
Achievement Award” at the 61st Annual
Gerald Loeb Awards for Distinguished
Business and Financial Journalism, 2018.
January – February 2021 | 7
JG: The policy response was old-time religion. JG: Yes, that was the lesson according to Milton
It was monetary and fiscal orthodoxy. President Friedman and Anna Schwartz. They wrote this big,
Warren G. Harding inherited a rip-roaring depression thick book, always referred to as a magisterial his-
in 1921. The roots of that business cycle downturn tory, A Monetary History of the United States. Its
lay in the wartime inflation of 1914–18. America most famous chapter is called “The Great Contrac-
entered the war in 1917 and proceeded to do what tion, 1929–33.” Friedman says the money supply
belligerent countries invariably do—to spend more declined by a third, and he thought that that was
than they earn and to borrow the difference. what put the “great” in “Great Depression.”
Ben Bernanke, you recall, on the occasion of
Milton Friedman’s ninetieth birthday apologized
It was to fight war that the Lincoln to Milton and Anna, saying, “Regarding the Great
administration issued the first Depression, you’re right, we did it. We’re very
sorry. But thanks to you, we won’t do it again.”
greenbacks—paper money not
They have not done it again. And they have
convertible on demand into gold or silver. done everything in their power to ignore the les-
sons of 1920–21, too. They are all in for interest
rate suppression and other such radical nos-
The Harding administration balanced the trums—the “buttinski method.” Do you know
budget—so no fiscal stimulus. Real interest rates what a buttinski is?
were punitively high—there was no QE. Treasury KD: No, I don’t.
secretary [Andrew W.] Mellon used his influence to JG: Somebody who butts in. To them, interest
reduce those rates. Meanwhile prices fell and wages rates are not prices to be discovered in the market,
fell. The stock market was sawed in half. Corporate but administered by experts like themselves.
profits collapsed. Unemployment was then unmea-
KD: This cycle is perhaps unique in the sense
sured, but it soared. But the price mechanism,
that there is so little price discovery while there
more or less freely functioning, did its job. Because
are so many price-insensitive buyers, not just the
wages did fall, businesses could regain profitability
Federal Reserve, but also index fund investors and
at lower levels of prices.
virtue-signaling millennials. How price insensitive
The depression of 1920–21 began in inflation, are the banks, and how coerced are their purchases
ended in deflation, but it did end: eighteen months of government bonds?
from business cycle top to business cycle bottom. JG: Well, they need the government securities
Compare the Hoover administration’s response to fulfill the regulatory requirements for so-called
to the 1929 stock market crash. President Herbert high-quality liquid assets. And yes, central banks
Hoover (he had been Harding’s secretary of com- are price insensitive, credit insensitive, value insen-
merce) called on business leaders like Henry Ford sitive, and they are buyers of corporate debt as
not to cut wages. And they didn’t, with the result well as of government debt and, in some countries,
that falling prices, not neutralized by falling wages, of equities besides.
devastated corporate earnings, and thus corporate KD: Why has this so-called “everything bubble”
investment. Mass unemployment followed. gotten as big as it has? Has that surprised you at
KD: The Fed also responded to the slump by all? It certainly has me.
injecting money into the financial system by buying JG: Oh yes. I wake up surprised and go to bed
government securities. And yet Milton Friedman surprised. I mean, consider the $17 trillion plus in
and others claimed they didn’t do enough. securities priced to yield less than nothing. That’s
8 | The Austrian | Vol. 7, No. 1
a surprise. It’s a singularity, nothing like it in the JG: It depends on the nature of the financial
entire history of interest rates. Certainly, a finan- crisis. Say it’s an inflationary one. And say that
cial journalist is privileged to live in this world in instead of 2 percent inflation, it’s 4 percent or 5
which so much is new, so much is to some sense percent. The indicated response would be to raise
shocking (or gratifying, depending on how you’re the federal funds rate, but rivets start popping
positioned). when money gets tight in a leveraged economy.
KD: A friend once said, “It’s okay to forecast
the end of the world, just don’t ever give a date.” The Fed is arsonist and fireman
When people ask you about timing, what do you all rolled up into one.
tell them?
JG: Oh, I’ve become very wily. Years ago, some-
KD: So we’re in an inflationary crisis. Let’s face
one asked me to forecast the ten-year yield one
it, the Fed has had a license to print money partially
year hence, and I had the presence of mind to
due to Amazon driving prices down. There’s also
say no, thank you. I count that as my journalistic been a commodity bust. Everything has gone their
coming of age. Only rookies pick levels and dates. way. Are you suggesting, in your own words, that
KD: Is it easier to look ten years out? If you take “inflation is kryptonite to bonds” and that this is
the long view, what do you feel confident in pre- something the Fed does not anticipate?
dicting? JG: Well, as a rule, the Fed anticipates nothing.
JG: I’m fairly confident about the arc of mon- As a rule, most of us anticipate nothing, the future
etary change. Every succeeding crisis brings a being complex and, for the most part, unpredict-
more muscular monetary response—a lower funds able. By the way, the phrase “foreseeable future,”
rate, a larger Fed balance sheet. But ultralow rates is an oxymoron.
encourage more credit formation, which leads to Yes, inflation has been a no-show, though
greater fragility and thus to the next crisis. The Fed maybe that’s changing. Charles Goodhart and his
is arsonist and fireman all rolled up into one. coauthor Manoj Pradhan, in their fine new book,
KD: Let’s consider a scenario. Let’s say in the The Great Demographic Reversal, point out that
next year or so we get a severe global recession the past thirty years have delivered a huge posi-
which starts to tip over some of these credit domi- tive supply shock. That is, a supply shock in labor.
noes. How might such a scenario play out? But they contend that, for a number of reasons,
January
January–– February
February2021
2021| 9| 9
the future will be very different, featuring rising inflation
and interest rates alike. It’s an impressive and persuasive
argument they make.
People my age will no longer be productive, the book
says. They will be needful, they will be in the hospital,
they will be attended to by their loving aides who will
help them either walk or remember, or both. And the
dependency ratio [the ratio of those not in the labor All of this is going to add up
force to those in it] is going to rise. So there will be less
to years of inflation, which
labor serving and greater demand. And I will add that
these will be added to the perhaps inevitable central will shock the bond markets,
bank response, which is to be more generous in provi- especially that portion of
sioning the system with money and credit.
the bond market, the $17
So all of this is going to add up to years of inflation,
which will shock the bond markets, especially that por- trillion portion, which is
tion of the bond market, the $17 trillion portion, which now priced for the certainty
is now priced for the certainty—not the risk, mind you, of either stable prices or
but seemingly the certainty—of either stable prices or
gently dwindling prices. What the world is not set up for gently dwindling prices.
is an inflation, to be sure.
KD: Just to clarify, you’re talking about labor from
China, particularly, and from India…
JG: India, Eastern Europe.
KD: So we’ve gotten the benefits, up front, but these
people, as they prosper, will demand more energy, more
protein, etc. Are the authors saying the demand side is
coming with a lag and that, in turn, adds to inflationary
pressures?
JG: Yes. I’m going to read you a paragraph from this
book.
It’s China’s “globalisation and the reincorporation of
Eastern Europe into the world trading system, together
with the demographic forces, the arrival of baby boomers
into the labour force and the improvement in the depen-
dency ratio, together with greater women’s employment
[that] produced the largest ever, massive positive labour
supply shock. The effective labor supply force for the
world’s advanced economy trading system more than
doubled over those 27 years, from 1991 to 2018.”
But that’s in the bank. It’s behind us. What lies ahead
is a deteriorating dependency ratio. More needy people,
fewer productive ones, fewer working ones, perhaps
10 | The Austrian | Vol. 7, No. 1
more monetary stimulus, and rising prices at the to choosing effective ESG-themed investments.
checkout counter rather than falling ones. Don’t go buying the exchange-traded funds labeled
KD: In North America, the oil rig count is down ESG, he says. They own Apple and Microsoft and
61 percent year-to-date and the natural gas rig Facebook and Alphabet. Instead, buy the kind of
count is down 18 percent. So on top of all of this, dirty industrial business that’s cleaning itself up. It
we’re now getting a commodity supply shock. Is makes sense to me.
this another tailwind for commodities?
KD: That’s an interesting arbitrage. Is there a
JG: Yes, and you don’t need a big inflation to similar opportunity in more accurate accounting?
generate returns. Years of subpar investment in I’m thinking about a company like Tesla, where
productive capacity in the things that the world
everyone is focused on the lack of emissions, but
needs more of is the essence of the bull case. The
they’re overlooking where this electricity is coming
key is the supply side.
from, not to mention the costs of recycling bat-
KD: Socially responsible investing, a.k.a. ESG
teries.
[environmental, social, and governance], has led to
fossil fuel divestment as well. How does ESG enter JG: I am all for better accounting. And now
into the equation for investors? Tesla’s entering the S&P 500 on the strength of
JG: ESG is a bull-market luxury. In a bear market,
its virtue and flash and momentum and of the tax
people, I think, are much more concerned about credits by which alone it achieves profitability. So
survival than they are about making a political there’s a singularity of the year 2020 along with
statement. $17 trillion in negative-yielding bonds.
Will Thomson, founder and managing partner KD: You talked about the cyclical nature of mar-
of Massif Capital LLC, has a really smart approach kets. Right now youth is elevated. Has the digitalJanuary – February 2021 | 11
revolution made this a young man’s game or is example, by such mundane things as the size of the
there still room for elder wisdom? world’s advertising market.
JG: Based upon my experience, there’s no room But those objections, the wisdom of the ages,
for elder wisdom. play very badly on the upswing. Again, I think this is
KD: [Laughter] nothing new.
KD: Regarding youthful exuberance, I remember
JG: Raging bull markets are always young peo-
ple’s thing. Old guys always say, “I wouldn’t be so the late ’90s tech bubble. On February 15, 2000,
60 Minutes aired a story by Bob Simon called “Dot-
quick to pay 170 times revenues for that particular
Com Kids” where Simon interviewed several young
stock. I seem to recall something like this in 1968,
founders of web-based startups that were housed
or was it 1868?” This is what old people always
in old buildings in downtown Manhattan, dubbed
sound like. Do you remember the author George
Silicon Alley. One even told him, essentially, “We’re
Goodman? I think his pen name was Adam Smith;
coming after your job. You’re going to be roadkill.”
he wrote a book called The Money Game.
I guess it didn’t quite turn out that way, did it?
KD: Oh sure. The go-go ’60s.
JG: No, but in fairness there’s something to this.
JG: If you’re starting a hedge fund, you want There’s something to the displacement of human
young people buying the stocks that are going to beings by human ingenuity. It is certainly a fact
go up. Because they don’t know enough not to that technology has improved lives, reduced costs,
buy them. People who know enough not to buy increased comfort, amused countless millions,
them are going to underperform. So in a way it and cost some jobs while creating others. That’s
was ever thus. Youth will be served, and youth the nature of capitalist progress. Capitalist prog-
especially will be served in great raging liquidity- ress is not always to everyone’s aesthetic taste,
driven bull markets. but it is the ultimate democratic expression of how
Witness bitcoin and the charm and the dem- resources ought to be allocated. The sovereignty
onstrated excellence of the FAANG [Facebook, of the consumer, whatever the consumer’s taste
Amazon, Apple, Netflix, Google] stocks. The young might be, that’s what will be served.
people don’t imagine that they have great business So young people, whether they can express it
models. What they do imagine is that the possibili- just that way or not, do live it. They buy what they
ties for expansion are infinite, whereas the expan- themselves like, and what they like often mystifies
sion may be limited in the case of Facebook, for their elders.
Capitalist progress is not always to
everyone’s aesthetic taste, but it is
the ultimate democratic expression of
how resources ought to be allocated.
The sovereignty of the consumer,
whatever the consumer’s taste might
be, that’s what will be served.12 | The Austrian | Vol. 7, No. 1
KD: Elders often worry about the next generation.
Look at some of the toxic ideology young people have
imbibed. How concerned are you? Is there hope?
I think it’s worrying that JG: Oh, of course. I am the father of four and the
grandfather of five, and those nine people are fabulous!
freedom of speech seems to
KD: That’s the hope! That’s the future.
be back on its heels as much
JG: Right, but everybody else is very questionable.
as it has ever been. Freedom KD: [Laughter]
of speech, in America, was JG: Go back to the ’30s and Marxism, without any
not quite so endangered of the gloss of democratic liberalism, Marxism itself—
hammer and claw—was culturally and politically preva-
even in the ‘30s as it is now. lent. And if it wasn’t Marxism, it was the vogue in fascism.
We forget that the top tax rate in the Eisenhower years
was in the upper ’80s, in fact, into the ’90s. Very few
people actually paid that, but that was a legacy of the
ideas that reigned, not quite uncontested, but domi-
nated in the ’30s and into the ’40s. That gradually gave
way, but don’t forget what happened in the ’60s. There
was a Marxist resurgence and then, lo and behold, come
the inflationary ’70s, and people find they’ve had enough
of that, and then comes Ronald Reagan.
So there’s a cyclicality, there’s an episodic quality to
our politics. I don’t think these are end times politically.
I think it’s worrying that freedom of speech seems to be
back on its heels as much as it has ever been. Freedom
of speech, in America, was not quite so endangered even
in the ’30s as it is now. That is genuinely frightening. I’m
frightened by it.
KD: Rollo May, an American psychiatrist, once said,
“The opposite of courage in our society is not coward-
ice, it is conformity.” It seems like we’re at a point in
time when it takes courage to distance oneself from the
crowd and from some of these really toxic ideas.
JG: It takes steadfastness, though just how much
depends. If you are in a position to lose your job and
instead of holding on to that job in the face of ideas and
the insistence on ideas you think are wrong, instead of
that, you stand up and you object at the risk of losing
your livelihood in the case of this master of Eton Col-
lege in England [he was fired for refusing to withdraw his
posted lecture on the virtues of manliness] (and he has
five kids)—if you do that, that is courageous.
Photo by ©Jennifer Graylock-Graylock.comJanuary – February 2021 | 13
If you have your own soapbox and you are Grant’s takes a stand on the integrity of the cur-
not really at risk of losing your livelihood, it takes rency. It takes a stand on the nature of markets.
a modicum of bloody mindedness to stand up It takes a stand on price discovery as opposed to
in front of a mass of opinion. It takes a certain price administration. And we say those things in
amount of moxie to risk social ostracism. That’s public and print. We say them on air when given
part and parcel of it sometimes, but it doesn’t the chance. But they have not lately helped people
require a Medal of Honor in that setting. So that’s make money.
the distinction I wanted to draw: it depends on how
you’re situated in life. CNBC’s viewers—I think most of them—want
to know where the markets are going, and if you
KD: CNBC certainly isn’t the worst of the cancel
are not on the right side of that question, you wear
culture, but nonconformists like Peter Schiff, Marc
Faber, and Michael Pento have all been excommu- out your welcome as a public voice. So I don’t
nicated. Jim Grant is still there. How have you been begrudge the producers at CNBC for choosing
able to pull that off? people with a hot hand.
JG: I’m not sure that the premise of the ques- I am happy, retrospectively, to have been in the
tion is quite correct. I’m on the squawk box every wilderness in the early 2000s. Let’s not forget how
so often, but not very frequently. Take another long they lasted: 2001, ’02, ’03, ’04, ’05, ’06, ’07, yes?
kind of financial personage. Ed Yardeni is a suc-
KD: I remember.
cessful economist. He’s made his living by serving
his clients, by trying to make money for them with- JG: If you had had a correct, informed, bearish
out passing judgment on public policy. Whether view on house prices and mortgage-backed securi-
the Fed is doing the right thing or the wrong thing ties, you were more than a half decade of wrong
is not his remit, he says. His remit, in fact, is not before being gloriously right. You have to stick with
fighting the Fed, but adapting to monetary policy your guns and have to believe in what you believe
(whatever it is) to make money. and accept that the world can get tired of hearing
So people like you, like me, like others you men- your foreboding (or, as the case may be, annoy-
tioned, have chosen a different job description. ingly bullish) voice.
James Grant speaking at the Austrian
Economics Research Conference held at
the Mises Institute in Auburn, AL, 2014.14 | The Austrian | Vol. 7, No. 1
KD: At a time when other skeptics are routinely me—and to my journalistic lemonade stand—is
dismissed as “the bear crying wolf,” you have some- not saying the correct things to insinuate myself
how managed to stay relevant. The bottom line is into the good graces of the financial establishment.
you are delivering value. You’re doing a lot more It’s speaking up against bubbles and the monetary
than just bashing the Fed. Grant’s has made some manipulations that inflate them. It’s speaking up
great bullish calls over the years. For example, you for the incredibly outré institutions of the gold
saw the economy recovering in 2009 and were bull- standard and for the great institution of corporate
ish on Google fairly early in the bull market, when solvency (you’d be surprised how controversial it
it was considered a value stock. I would posit that can become at the end of a boom).
the reason you have this platform is that you’re not
That’s the way we’ve run things for a long time.
just a broken record.
We’ve been in business for thirty-seven years, and
JG: Well, thank you. I am happy to agree with that’s the way we intend to keep doing it.
that, and I would credit the fine analysts we have
KD: You recently published the “Grant’s Mani-
had here over the years. Now, of course, Evan
Lorenz is a terrific securities analyst, and, way back festo,” in which you actually tooted your own horn
when, Dan Gertner—this in 2006 and 2007—did a (very unusual), specifically your track record of
lot of very early and important securities analysis identifying excesses. Looking at this everything
on complex mortgage structures. bubble, where do you see the areas of greatest fra-
gility?
So, yes, thank you. We have indeed earned
a voice. I think sometimes, when I get discour- JG: To me, the most excessive of all the excesses
aged, that we have earned our reputation a little is these $17 trillion plus of nominal negatively yield-
bit too well of being critics of contemporary mon- ing bonds. Nothing like it in four thousand years of
etary arrangements, but I wouldn’t change that. I interest rate history. They seem to be priced for
think that these institutions and these policies are one outcome alone, the noninflationary one.
wrongheaded. I think they are dangerous. I think Cocksure people baffle me. You run across them
they are possibly even bad for the planet! all the time on Wall Street, somebody who simply
It comes down to, Where do you want to make declares, “this is going to happen,” or “that’s going
a stand? What matters to you? What matters to to happen.”
James Grant with
his son, Phil, 2018.
We have indeed earned a voice.
I think sometimes, when I get
discouraged, that we have earned
our reputation a little bit too well
of being critics of contemporary
monetary arrangements, but
Photo by ©Jennifer Graylock-Graylock.com
I wouldn’t change that.January – February 2021 | 15
My hope is that the next crisis will
become also a crisis of belief in
central banks and in the judgment
of the people who staff them.
How do you know that? This is a probabilistic JG: And maybe that something is going to be
world; it’s not a world of certainty. the people’s confidence in the central banks.
The great nineteenth-century historian Thomas The central bankers have gotten everyone flum-
Babington Macaulay was one of the type. “I wish I moxed. How would you like to own the stock of a
was as certain of anything as Tom Macaulay is of company like the Fed, that did not, shall we say, dis-
everything,” someone said of him. I feel that way tinguish itself in 2005, ’06, ’07, ’08, ’09, yet comes
with a lot of the Wall Street pundits I read and out of it with greater power, more prestige…? Now
listen to. that’s a franchise. My hope is that the next crisis
The people who are holding on to these guar- will become also a crisis of belief in central banks
anteed-loss securities seem certain of the benevo- and in the judgment of the people who staff them.
lent path of stable or falling prices. I think by the One of the big trends of the past century is the
time Mr. Market puts them through the slicing and socialization of financial risk. Increasingly, individu-
dicing machine, there won’t be much left of them. als bear less of it, governments more, and I wonder
KD: Will the next banking crisis have sovereign if the sheer inequity of this trend has poisoned our
debt at the center of it? politics. Not many people know that up until the
1935 Banking Act, it was the stockholders who got
JG: It could. It’s one candidate. Corporate credit
a capital call if the institution in which they held
is another. With every downward lurch in the
a fractional interest became impaired or insolvent.
stock market, central banks barge in to help. But
Mind you, the stockholders, not the taxpayers.
in helping—with their credit infusions and inter-
Compare and contrast 2008, when, in effect, the
est rate slashing—they invite still more lending and
government issued a capital call to the taxpayers.
borrowing, therefore greater leverage, therefore
greater fragility, therefore a greater likelihood that That’s all wrong.
the next financial disturbance will elicit an even KD: This is collectivism, is it not?
greater monetary response, thereby bringing still JG: It’s financial collectivism. It’s the national-
more leverage, more fragility, etc., and on and on. ization of loss and the privatization of gain. Remind
KD: Until something breaks. me to fix it when I become president. nn16 | The Austrian | Vol. 7, No. 1
COMMUNITY AND
CIVIL SOCIETY OVER STATE
DAVIDGORDON
REVIEWS
The Third Pillar: How Markets and the State
Leave the Community Behind
By Raghuram Rajan
R aghuram Rajan has written a surprising book. Now teaching
finance at the University of Chicago, he is an international
bureaucrat in good standing, and not a minor one at that; he
Penguin Books, 2020
xxviii + 430 pages was chief economist of the International Monetary Fund. Yet
far from calling for an increase in “global governance,” as one
might expect from someone with his background, he wants to
strengthen the local, “proximate,” community.
“If more powers are delegated from the state to the
local community level,” he tells us, “a community can shape
its own future better, and will have more control over it.
Some communities will have a specific ethnic concentra-
tion, and community culture will gravitate toward that
ethnic group’s culture….A strong local community could
satisfy people’s need to live in a cohesive social structure
with others of the same culture or religion….None of this
implies exclusion [but]—having monocultures that satisfy
the tastes of those who want monocultures is as important
as having multicultures.”
The problem with “populist nationalism,” then, is not
that its advocates prefer national sovereignty to control by
internationally minded elites. They are right to do so, given
human nature as it is, and the leaders of the European Union
neglected this truth to their cost. “The problem was that
no one asked their people how much more Europe they
wanted, and how much sovereignty they were willing to give
up....The process of integration was, therefore, profoundly
undemocratic....Ultimately, though, integration succeeds
only when there is deep social empathy between people.”January – February 2021 | 17
But if national sovereignty is better than rule by tech- dogma. He rejects Marxist economics, which he calls
nocrats, still better is the local community. “mostly wrong,” but he calls Marx “one of the great-
est social thinkers of modern times.” It is a particular
Rajan’s defense of the local community is part of dogma that he has taken over from Marx and also, in
the ambitious theory of history suggested by his book’s his telling, from Adam Smith, that leads him to advo-
subtitle. As he sees it, there must be a balance among
cate a state strong enough to rein in the market. “The
the market, the state, and the local community. Each
inexorable political tendency of a free, unfettered,
is dangerous if unchecked by the other two. In fact,
unregulated market was for the producers, after expe-
though, the alleged dangers of the market stem largely,
riencing the rigors of competition, to attempt cartel-
if not entirely, from “crony capitalism,” the partnership
ization.” He cites as an example John D. Rockefeller’s
of the state and business interests to exploit consum-
control of oil refining in the United States through his
ers. Why not drastically limit the power of the state
to block this unholy alliance rather than trust a strong Standard Oil Company and deems justified the suit
state to limit the market? against the company under the Sherman Anti-Trust Act,
The author’s failure to support the free market fully
stems from an assumption that emerges in his history The alleged dangers of
of capitalism in Europe and America. That account is
the market stem largely,
well worth studying, and Rajan’s discussions of the
end of feudalism and the rise of the gentry are espe- if not entirely, from
cially good, though our confidence is a bit shaken by
“crony capitalism,” the
his calling Henri Pirenne, the greatest of all Belgian
historians, French. partnership of the state
But matters take a turn for the worse when he
and business interests
reaches the rise of capitalism itself, and here, I regret to exploit consumers.
to say, he has taken on board a controversial Marxist18 | The Austrian | Vol. 7, No. 1
but he omits any discussion of the revisionist scholar-
ship that indicates Rockefeller often got the worst of
battles with competing refineries and that the lawsuit
was not a measure to promote competition but rather
an attempt to advance the interests of J.P. Morgan and
his associates against their rivals. Of this, interested
readers will find a full account in Murray Rothbard’s
The Progressive Era. It would seem the better part of
wisdom not to rely on the state to fight alleged monop-
olies on grounds of efficiency but instead to curtail the
power of the state so that “crony capitalism” cannot
gain a foothold.
Despite his wrong path on this issue, though, the
book on the whole is excellent and Rajan makes many
useful points. We hear much today about the danger
that automation will drive massive numbers of people
out of work. Rajan is appropriately skeptical. Automa-
tion, like past innovations, can bring some jobs to an
end, but this frees up labor to go elsewhere. “Routine
jobs have been automated out of existence for decades
now, regardless of whether the jobs required skills or
not. Banks had hundreds of thousands of cashiers
taking in and paying out cash, as well as counting it at
the end of the day….Automated teller machines (ATMs)
and cash-counting machines displaced them….Yet, if
anything, employment in banking has gone up as more,
cheaper, bank branches are opened, and tellers morph
into relationship managers advising retail customers on
their loan options and their investment portfolios.”
Some of those most fearful of automation, and
Some of those most fearful others as well, have proposed a universal basic income
of automation, and others as (UBI) that would free people of the need to work by
grants of sufficient money to live a life of leisure. Rajan
well, have proposed a universal raises against this proposal a devastating objection:
basic income that would free “UBI is an all-or-nothing scheme, and as such, suffers
from the traditional difficulties associated with such a
people of the need to work scheme. UBI essentially assumes that most people will
by grants of sufficient money not have a job, and there will be no point in them search-
ing for one or attempting to retrain themselves since no
to live a life of leisure. new jobs will be possible. It is a counsel of despair not
just for job seekers but also for job creators, becauseJanuary – February 2021 | 19
Rajan, who is not without egalitarian sympathies, for
the most part takes this to be a genuine problem that he
is at pains to mitigate. But in one place, he challenges
directly one of the key myths of our time. University
education is vastly overrated, and many children
would do better with less compulsory schooling.
after UBI is implemented, any new job will have to be with “good” public schools? By doing so, it is claimed,
more attractive in pay and responsibilities than paid lei- they give their children an unfair advantage over chil-
sure, a difficult line to cross.” dren from poor families, because these families cannot
afford housing in the expensive neighborhoods.
Another important discussion in the book returns
us to the local community. Some have objected on Rajan, who is not without egalitarian sympathies,
egalitarian grounds to programs that stress community for the most part takes this to be a genuine problem
control. Given the commanding importance for one’s that he is at pains to mitigate. But in one place, he
future income and social status of going to the “right” challenges directly one of the key myths of our time.
university, with the Ivy League schools at the top, University education is vastly overrated, and many chil-
won’t people who are fairly well off but who cannot dren would do better with less compulsory schooling:
afford the top private schools move to neighborhoods “Companies seem to be rating jobs as requiring higher
credentials simply because schools are not teaching
basic skills well….International assessments seem to
verify the low average quality of US schooling….The
harm done is worse than simply too much time spent
by students who do not need degrees acquiring them
at great expense, firms over-paying for qualifications
they do not need, and a higher-education system that
consumes enormous resources. It causes professions
to inflate their own minimum credential requirements
as they try to gain in prestige...”
Rajan does not pursue the full implications of this
challenge, but that he mentions the issue at all is a tes-
tament to the wisdom of his book. nn
David Gordon is Senior Fellow at the Mises Institute, and
editor of the Mises Review.20 | The Austrian | Vol. 7, No. 1
Special Entrepreneurship Issue
Quarterly Journal of
Austrian Economics
Last year saw online interest in the Mises entrepreneurship scholars with an inter- • A praxeological definition of the Mise-
Institute’s flagship scholarly journal, the est in Austrian economics.” sian entrepreneur-promoter
Quarterly Journal of Austrian Econom-
ics, spike to record highs with the spe- Some of the topics discussed: • Extending the subjectivist approach to
cial double issue on entrepreneurship. • Richard Cantillon’s impact on our under- team entrepreneurship
Guest edited by Professor Per Bylund, standing of the term “entrepreneur” • The central role of institutions in both
this issue suggested directions for future
• Extending Austrian economic theory into new institutional economics and Aus-
research and collaboration within Aus-
the realm of the individual “economy” trian economics
trian economics and in the scholarship
of entrepreneurship. The contributions • The role of original ideas and inspiration This special issue set records in QJAE met-
offered a multitude of perspectives on in the entrepreneurial process rics on the Scholastica journal publishing
a broad set of entrepreneurship-related • Carl Menger’s observation that value is site, with a daily article download record
issues. Quoting from Bylund’s introduc- subjective, a missing piece of the puzzle nearly twice as high as the next most pop-
tion, “The articles…address directions in entrepreneurship theory
for further expansion beyond the pres- ular issue, and a record daily number of
• The development of a typology to assist unique site visitors as well.
ent boundaries of Austrian economics
organizational scholars in applying core
and entrepreneurship theory. This…issue
includes articles that open new lines of Austrian insights You can read or download the special
thinking for Austrian economists with an • The importance of the Austrian empha- double issue, and other past issues of the
interest in entrepreneurship as well as for sis on time in entrepreneurship QJAE, at: mises.org/QJAEarchives nn
23,000 COMPANIES
MATCH GIFTS . . .
DOES YOURS?
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will match any charitable contributions made by their
employees. To find out if your company has a matching
gift policy, please visit matchinggifts.com/mises or
check with your HR department to find out if your gift
to the Mises Institute can be matched.
Let your company double or triple
your impact!January – February 2021 | 21
Economics
For Business
ANNOUNCING
Economics for Business
It’s a core concept of Misesian economics that That’s what businesses do to succeed: facilitate new
the entrepreneur is the driver of the market system. economic value.
Entrepreneurship is a dynamic, innovative business: An integrating thread on the new platform is our
identifying customers and their wants, designing
unique Entrepreneurial GPS, which uses the analogy
new and creative ways to address those wants, and
of digital navigation to help businesses assess where
assembling the resources to take the innovation to
they are, where they need to go, and how to get there.
market. Anyone who is a technologist, designer, ser-
There are seven “pins,” or stages, in the E-GPS jour-
vice provider, retailer, or marketer, and, indeed, any
ney, from imagination and design to management and
manager engaged in any business that serves custom-
growth. Each pin includes ten to twenty “frontiers,”
ers, whether business to consumer (B2C) or business
to business (B2B), can benefit from a deeper under- detailed knowledge repositories, and toolsets to tackle
standing of the entrepreneurial process. every element of the journey stage before advancing
to the next one. The journey is not necessarily linear;
To help all businesspeople access Austrian prin- recursion and revisiting are built in.
ciples and apply them in their own businesses, the
Mises Institute is launching Economics for Business. Economics for Business utilizes all the latest avail-
This is a broad-based interactive website to share able technologies to be as useful and user-friendly as
Austrian economics with the business community in possible, including application programming inter-
a form that’s easy and useful. We offer observations, faces (APIs) that make all content easy to find and
tools, and methods written in accessible business lan- accessible, and artificial intelligence (AI) and machine
guage and ready for application. learning (ML) to help ensure every individual finds
Entrepreneurship is the intentional pursuit of new the exact content he or she wants and needs.
economic value, to use Dr. Mark Packard’s formula- Visit econ4business.com to see the new inter-
tion (see the recent special issue on entrepreneur- active world of Austrian economics–based entre-
ship in the Quarterly Journal of Austrian Economics). preneurship. nn22 | The Austrian | Vol. 7, No. 1
INSTITUTE HAPPENINGS
Just Released: Fourth Edition of
Money, Bank Credit, and Economic Cycles
The new edition of Jesús Huerta de Soto’s masterful treatise is now available.
The new edition has been thoroughly revised and includes, among other minor
modifications and additions, references to the most relevant literature pub-
lished since the previous edition appeared in 2012. De Soto says in his intro-
duction, “The success of this book is due to the undeniable fact that the noble
Austrian approach has managed to answer the theoretical, historical, and ethi-
cal conundrums we face today.”
The book is available at the Mises Bookstore and as a free download from
mises.org (mises.org/money-bank-credit-and-economic-cycles).
Jeff Deist Speaks about Asset
Forfeiture in East Tennessee
Jeff Deist spoke at a fundraiser dinner to benefit the end of civil asset
forfeiture in Knoxville, Tennessee, on January 7. The event was coor-
dinated by Nathan Keeble, a former Mises University student, and fea-
tured Glenn Jacobs (formerly WWE star Kane), the mayor of Knox
County, Tennessee, and a staunch libertarian. Jeff spoke on the neces-
sity of secessionist movements given the stark differences between the
views of citizens from one region of the US to another, urban vs. rural,
and praised the Swiss model, where control is at the local level and the
national government has very little power to do anything.
Congratulations
Demelza Hays!
Demelza Hays, a 2015 Mises Research Fellow says, “I defended my doctoral
thesis today, January 11, 2021, titled, The Role of Cryptocurrency in Asset
Management. After a successful defense, the University of Liechtenstein
conferred the title Doctor of Business Economics to me. I started my doc-
toral studies the semester after I was a Mises Institute Fellow. The foun-
dation in economics that I gained while being a Fellow was integral to my
dissertation work and continues to be the main source of inspiration for my
research.”January – February 2021 | 23
Newman in
the House
Patrick visited the Institute in January to
put finishing touches on his forthcoming
book, Cronyism. This time around, Patrick
looks into the evolution of “favor seeking”
in early American history, from the colo-
nial era to the Mexican-American War. He
argues that cronyism emerged from the
perennial clash between the forces of lib-
erty and power.
This important work shows the ugly
side of American history and how politi-
cians routinely dipped their hands in the
public trough to benefit themselves and
their supporters. Newman leaves no cor-
rupt dealing unexposed, tracing the path
of who lobbied for what legislation and
how they profited at the public expense.
Cronyism will be available in the fall of
2021. To support this project, go to
Mises.org/newestbook
Mises Graduate Program
Welcomes Its Second Cohort
The Mises Institute’s new graduate program welcomes its second cohort of graduate
students, while the initial cohort continues into their third course.
The master’s program requires completion of eight three-semester-hour courses and a
thesis suitable for publication in a peer-reviewed journal.
The program incorporates distance education tools to accommodate students and fac- LEARN MORE
AT MISES.ORG/EDU
ulty residing in various locations and time zones. Using a preeminent learning manage-
ment system, Canvas®, we are able to present purely Austrian economics coursework
interactively, operating entirely online.
This long-awaited and much-needed program is a fulfillment of Mises’s and Rothbard’s
dreams of a rigorous graduate school dedicated to the study of Austrian economics and
free market principles. The third cohort of graduate students begins in August 2021!
Thanks to all of our Founding Sponsors for their generous support.24 | The Austrian | Vol. 7, No. 1
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